(Yicai Global) Oct. 27 -- Demand for China's new dollar-denominated sovereign bond, issued in Hong Kong yesterday, is reportedly 11 times the size of the actual deal due to high interest from international investors.

The USD2 billion issuance was issued in two equal tranches of five-year and ten-year bonds, but subscriptions totaled almost USD22 billion.

The bonds are an important investment and risk-hedging instrument for domestic and foreign investors, said Lian Ping, chief economist at Bank of Communications Ltd. [SHA:601328; HKG:3328]. The issuance enriches international capital market financial products and enables international investors to share in the success of China's economic development, which is an important part of the country opening up to the rest of the world.

Yield for the five-year dollar bond is 2.196 percent at a coupon rate of 2.125 percent, and 2.687 percent at a 2.625-percent coupon for the 10-year version. US Treasury 10-year bonds currently yield 2.434 percent and five-year bonds get 2.050 percent, giving a much lower spread between the two nation's sovereign bonds than the last time China issued dollar-denominated bonds.

The new ten-year Chinese bonds should have a yield of 25 basis points more than their US counterpart, and 15 basis points more for five-year bonds. When China last issued dollar sovereign bonds, a USD500-million issuance in 2004, the spread was around 60 basis points, a Hong Kong broker told Yicai Global.

"The total issuance amount isn't very high, but international investors are really interested," said Liu Jian, a senior researcher with the Bank of Communications' financial research center. It is mostly because of strong demand from international investors that the spread has narrowed so significantly, he added.